Gujarat High Court
Textile Traders Co.-Op. Bank Ltd. vs P.K. Thakker Construction Pvt. Ltd. on 18 December, 2003
Equivalent citations: 2004 A I H C 1706, (2004) 4 GUJ LR 2971, (2004) 1 GUJ LH 335, (2004) 2 GCD 962 (GUJ)
Author: M.S. Shah
Bench: M.S. Shah
JUDGMENT M.S. Shah, J.
1. Rule. Mr NR Thakkar for the respondents waivesservice of Rule. In the facts and circumstances of the case, thepetition is taken up for final disposal today.
2. This petition is directed against a part of theorder dated 29.8.2003 (Annexure "J") passed by theGujarat State Co-operative Tribunal (hereinafter referredto as "the Tribunal") in revision application No. 196 of2003 arising from the order dated 30.4.2003 passed by theBoard of Nominees at Ahmedabad rejecting therespondent-defendants' application Exh.15 in SummaryLavad Suit No. 985 of 2003.
3. The petitioner-bank has filed the above numberedsuit before the Board of Nominees for recovering its duesto the tune of Rs.42 lakhs and odd amount. Thepetitioner-bank had advanced term loans of Rs.20 lakhsand cash credit hypothecation loan of Rs.5 lakhs in theyear 1997. The suit was filed on 20.3.2003 and uponservice of summons, the respondent-defendants appearedand on 9.4.2003, the defendants filed application Exh.15 for raising a preliminary issue whether the suit wasmaintainable against the defendants in as much as thedefendants were not members of the petitioner-bank (whichis a co-operative society) when the documents wereexecuted by the defendants in favour of thepetitioner-bank.
4. The Board of Nominees by its order dated30.4.2003 (Annexure "F") rejected the said applicationafter referring to the following facts :-
The defendants had submitted applications forbeing enrolled as members of the petitioner-bank and alsofor obtaining loans on 26.12.1996 or 30.12.1996. Theloan was to be obtained by defendant No.1 and defendantNos. 2, 3 and 4 were to be guarantors. The Board ofDirectors sanctioned the loan application on 21.1.1997.The documents for the loan as well as for the guaranteewere executed by the respondent-defendants on 25.1.1997.Thereafter, the Board of Directors passed Resolution No.2on 26.2.1997 accepting the applications of therespondent-defendants for membership. Thereafter, thepetitioner-bank made disbursement of the term loan ofRs.10 lakhs to defendant No. 1 on 26.3.1997 and anotherterm loan of Rs.5 lakhs was given to defendant No.1 on24.4.1997 and the third term loan of Rs.5 lakhs was givento defendant No.1 on 13.5.1997. In all, term loans ofRs.20 lakhs were disbursed to defendant No.1 between26.3.1997 and 13.5.1997. As far as the cash credithypothecation account is concerned, the firstdisbursement was made before 26.2.1997, but allsubsequent withdrawals were after 26.2.1997. Since thecash credit hypothecation account was initiallysanctioned for only one year, defendant No.1 applied forrenewal of cash credit hypothecation account on 21.3.1998which was sanctioned by the petitioner-bank. Sincedefendant No.1 made defaults in payments, thepetitioner-bank instituted the above numbered suit on20.3.2003.
The controversy about maintainability of the suithas been raised by the defendants on the ground that thedefendants were notmembersofthepetitioner-co-operative society when the defendantsexecuted the documents in favour of thepetitioner-society. The Board of Nominees held that therelevant date for examining whether the defendants weremembers or not was the date on which the transactionstook place i.e. the dates on which the petitioner-bankdisbursed the amounts to the defendants by way of loan/s.On that basis, the Board of Nominees held that the termloan amounts were disbursed to defendant No.1 from26.3.1997 onwards i.e. after the defendants wereenrolled as members on 26.2.1997. As regards the cashcredit hypothecation account, the defendants gave theapplication for renewal on 23.1.1998 and prior to thatdate they had already become members. In this view ofthe matter, the Board of Nominees held that thedefendants were members of the petitioner-society and,therefore, the suit was maintainable under Section 96(1)(b) of the Gujarat Co-operative Societies Act, 1961(hereinafter referred to as "the Act").
5. Aggrieved by the above order, the defendantscarried the matter in revision before the Tribunal. Whenthe stay application filed by the defendants in therevision application came up for hearing, after hearingthe parties, the Tribunal dismissed the stay applicationby order dated 17.6.2003 (Annexure "H"). In the saidinterim order also, the Tribunal referred to the findingsof fact given by the Board of Nominees as to when thedocuments were executed by the defendants, the date ofenrolment and the date of disbursement. Against the saidorder of the Tribunal rejecting the interim stayapplication, the defendants preferred Special CivilApplication No. 6992 of 2003 which came to be dismissedby this Court by order dated 23.6.2003 (Annexure "I")wherein the Court made, inter alia, the followingobservations :
- "On going through the order passed by the Tribunal, there is no dispute about the fact that the revision application is still pending before the Tribunal and the Tribunal has given clear, cogent and convincing reasons for refusing to grant interim relief. ... ... ... While going through the order passed by the Tribunal, the Court is of the view that after discussing the issues raised before it, the Tribunal has taken the view which any prudent person can take, qua the interim relief is concerned. Other aspects which are raised in the revision application can be gone into at the time when the revision application is decided. I am however of the view that the very issue as to when the petitioners can be said to be members, either at the time when the application was made, membership was granted, the loan was sanctioned, or when the amount was actually withdrawn, can be looked into when the matter is finally disposed of."
After making the aforesaid observations and afterobserving that the discretion exercised by the Tribunalin the present case cannot be said to be capricious orperverse or ultra vires, the Court dismissed the SpecialCivil Application.
6. When the revision application came to be finallyheard, the Tribunal referred to the facts already broughton record through documentary evidence being theapplications made by the defendants for membership, thedate of enrollment, the date on which the documents wereexecuted and the dates on which the loans weredisbursed. After considering those documents, theTribunal came to the following conclusions :
- "The defendants had submitted applications on 26.12.1996 or 30.12.1996 for becoming members of the petitioner-cooperative society and they were enrolled as members by the petitioner on 26.2.1997. The bank sanctioned the term loan papers on 21.1.1997 and the defendants executed the documents on 25.1.1997. The defendants were enrolled as members on 26.2.1997. The bank for the first time disbursed the loan of Rs.10 lakhs on 26.3.1997."
After referring to the aforesaid facts, theTribunal relied on its decision dated 31.3.2003 in AppealNo. 200 of 1999 taking the view that the relevant datefor considering whether the defendants were members ofthe plaintiff-cooperative society is the date on whichthe loan transaction took place. In the said decision,the Tribunal has also taken the view that when theapplication for membership is given by the applicantsalongwith other documents for loan, merely because theadministrative procedure regarding the application formembership is not completed, it cannot be said that theloan documents executed by the defendants were not intheir capacity as members of the society when themembership was ultimately granted after execution of thedocuments but before disbursement of the loans.
After referring to the aforesaid factual data andthe aforesaid view which the Tribunal had taken in someother cases, the Tribunal concluded that -
"considering the above facts, circumstances and order of the learned Nominee, it is clear that the learned Nominee has passed the said order after considering all aspects of the case papers and arguments of both the learned advocates and order passed by the learned Nominees is just and proper and hence, we do not find it just and proper to interfere with the order passed by the learned Nominee."
Thereafter the Tribunal further observed asunder:-
"However, learned Nominee is directed to decide the issue of membership as it involves mixed question of law and fact by taking evidence of both the parties in (sic - at) trial."
Then the Tribunal passed the following operativeorder :-
"Revision Application No. 196/03 is dismissed. The order of the learned Nominee below Ex.15 in summary lave suit No.985/03 dated 30/4/03 is confirmed. However, the applicants are directed to file their Leave to Defend Application on or before 10/9/2003. The learned Nominee is directed to decide the issue of membership as it involves mixed question of law and fact by taking evidence of both the parties in (sic - at) trial, and proceed in the matter according to law and decide the same on merits. No order as to cost."
(underlining supplied) The plaintiff-bank has filed the present petitionagainst the aforesaid underlined observations made andthe direction given by the Tribunal regarding the issueof membership. While issuing notice on 9.9.2003, this Court hadgranted the following ad-interim stay :- "Notice returnable on 23.9.2003. By way of ad-interim order, it is directed that the operative portion of the order dated 29.8.2003 passed by the Gujarat State Co-operative Tribunal in Revision Application No.196/2003, so far as it relates to ordering that "the learned Nominee is directed to decide the issue of membership as it involves mixed question of law and fact by taking evidence of both the parties in the trial" shall remain stayed." There is some controversy whether the ad-interimrelief continued to operate or stood vacated in view ofCivil application No. 7711 of 2003 filed by thedefendants under Article 226(3) of the Constitution. Thepetitioner-bank has filed Civil Application No. 8507 of2003 for continuing the ad-interim relief. It is,however, not necessary to go into that controversy as themain petition itself is heard and is being disposed oftoday.
7. At the hearing of this petition, Mr PK Jani withMr GS Thakkar, learned counsel for the petitioner-bankhave submitted that once the Tribunal confirmed the orderof the Board of Nominees that the defendants were membersof the petitioner-bank and, therefore, the suits weremaintainable, the Tribunal was not required to againdirect the Board of Nominees to decide the issue ofmembership by taking evidence of both the parties.
In the alternative, it is submitted that even ifthe Tribunal was justified in giving such a direction,all that the direction means is that as and when the suitis to be finally tried i.e. when the evidence is led atthe trial, only at that point of time the issue ofmembership is to be considered while finally disposing ofthe suit on the basis of evidence which is to be led atthe trial. But in the instant case, relying on theaforesaid underlined observations made by the Tribunal,the defendants have submitted application Exh.74 on25.11.2003 by which the defendants have again prayedbefore the Board of Nominees to require the parties tolead evidence on the issue of membership of thedefendants. It is submitted by Mr Jani that once theBoard of Nominees as well as the Tribunal had expressedtheir view about membership of the defendant andmaintainability of the suits, there was no question ofgiving another round to the defendants to raise the samecontroversy. Atleast till the suit is finally heard anddecided, the Board of Nominees is required to proceed onthe basis that the defendants were members of thepetitioner-bank on the date of transactions and the suitsare maintainable. The learned counsel for the petitionerhave also invited the attention of the Court to thedocuments on record of this petition.
8. On the other hand, Mr NR Thakkar for therespondents has vehemently opposed the petition and hassubmitted that the petitioner-bank may either accept theorder of the Tribunal as it is or the entire order mustgo, but the petitioner-bank cannot be permitted to enjoythe first part of the operative order and challenge thesecond part of the operative order.
It is further submitted that the scope ofjurisdiction of this Court under Article 226 or 227 ofthe Constitution is very limited and all that theTribunal has done in the case is to direct the Board ofNominees to decide the issue of membership after takingevidence of both the parties as it is a mixed question oflaw and fact and, therefore, no fault can be found withthe said direction of the Tribunal.
On merits, it is submitted that the defendantswere admittedly not enrolled as members of thepetitioner-bank as on the date of execution of thedocuments i.e. on 25.1.1997 and the date of execution ofthe documents being the only relevant date, thedefendants having been enrolled as members of thepetitioner-bank only on 26.2.1997, the defendants werenot members of the petitioner-bank on the date of thetransactions and, therefore, the suits were filed againstpersons who were not members and, therefore, covered byprovisions of Section 96(1)(c) of the Act which clausehas been struck down by this Court in 12 GLR 355.
Mr Thakkar has relied on the followingdecisions:-
(i) Shishirkumar Sharadchandra Sen vs. Bina Ashwinkumar Bhaumik, 1991 (1) GLR 195.
(ii) Hashmukhlal vs. Ishwarlal, 1986 (1) GLR 257
(iii) Ayyaswami Gounder vs. Munnuswamy Gounder, AIR 1984 SC 1789
(iv) 2000(4) GLR 3408 Mr Thakkar has also referred to a number ofdecisions of the Tribunal on the controversy aboutmembership.
9. Having heard the learned counsel for the parties,it appears to the Court that the Board of Nominees aswell as the Tribunal have given findings on applicationExh.15 and rejected the same in view of the fact thatboth the Board of Nominees and the Tribunal haveconsidered the date of disbursement as the date oftransaction. The defendants had submitted applicationsfor membership/s as well as for loans on 26th or 30thDecember 1996, the loans were sanctioned on 21st January1997 and thereafter the documents were executed on 25thJanuary 1997 and the defendants' applications dated26/30.12.1996 for membership were granted by the Board ofDirectors on 26th February 1997 and thereafterdisbursements were made for the term loans of Rs.20lakhs. It is thus clear that both the Board of Nomineesand the Tribunal have come to the conclusion that thedate of disbursement being the relevant date, thedefendants were members on the date of transactions and,therefore, the suit was maintainable. It appears,however, that the Tribunal was of the view that since thequestion of membership is a mixed question of law andfact, ultimately when the trial takes place, it would beopen to the parties to lead evidence on the question ofmembership as well and thereupon the Board of Nomineeswould decide all the questions finally on the basis ofthe evidence to be led at the trial. In para 8, whileconcluding the discussion also, the Tribunal has used theexpression "taking evidence of both the parties in (sicat) trial" and also in the operative order, the Tribunalhas taken pains to use the expression "taking evidence ofboth the parties in (sic at) trial". It is, therefore,clear that the Tribunal was quite conscious of the factthat the Board of Nominees as well as the Tribunal hadtaken prima facie view on the question of membership and,therefore, that view was to prevail till the evidence isled at the trial and the Board of Nominees finallyexamines all the questions including the question ofmembership.
10. Section 45 of the Gujarat Co-operative SocietiesAct, 1961 reads as under :-
"45. Restrictions on making loans.- (1) No society shall make a loan to any person other than a member, or on the security of its own shares, or on the security of any person who is not a member :
Provided that, with the special sanction of the Registrar, a society may make loans to another society.
(2)Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit."
A bare reading of the aforesaid Section wouldalso indicate that a co-operative bank can advance loansonly to its members. It is, therefore, obvious thatmaking an application for membership by a prospectiveloanee would always precede the co-operative bank makinga loan to such an applicant and, therefore, when theBoard of Directors accepts the membership application andenrols the applicant as a member of the co-operativesociety doing banking business, it is possible toconstrue the resolution enrolling the member as relatingback to the date on which the membership application wassubmitted by the prospective loanee. It is, however, notnecessary to pursue this question further as this Courtis inclined to agree with the view of the Board ofNominees as well as the Tribunal that the defendants werethe members of the petitioner-bank when the transactiongiving rise to the suit took place, that is when thedisbursements were made.
11. Mr Thakkar has submitted that even if the suit ismaintainable against defendant No.1 as per the reasoninggiven by the Board of Nominees and the Tribunal, in anyview of the matter, that finding cannot operate againstdefendant Nos. 2 to 4 the guarantors who had notransaction with the petitioner-bank after execution ofthe documents on 25.1.1997 and after their enrollment asmembers on 26.2.1997. It is, therefore, submitted thatdefendant Nos. 2 to 4 stand on a different footing thandefendant No.1.
12. It is required to be noted that applicationExh.15 was filed by all the defendants and upon rejectionof the said application, all the defendants filedrevision application No. 196 of 2003. The Tribunal hasdismissed the revision application without consideringany distinction between the case of defendant No.1 anddefendant Nos. 2 to 4. The defendants have notchallenged the said order dated 29.8.2003 of theTribunal. Hence, it is really not necessary to go intothe contention sought to be raised by the learned counselfor the defendants at this stage. However, since Mr NRThakkar for the respondent-defendants has asked for aruling, the Court has considered the documents executedby defendant No.1 and also the documents executed bydefendant Nos. 2 to 4 including the letter of guarantee.In this connection, it is necessary to refer to thesanction letter dated 21.1.1997 of the petitioner-bank bywhich defendant No.1 was informed that defendant No.1 wasrequired to give personal guarantees of Praful NandlalThakkar (defendant No.2) and Kamlesh Nandlal Thakkar(defendant No.3) and also additional personal guaranteeof Nandlal Ramanlal Thakkar (defendant No.4) and thatthey will have to become nominal members of the bank.The terms of loan at the back of the said documentinclude term No. 6 which states that "for the abovesanctioned banking facility, defendant No. 1 will haveto give guarantee and the guarantors will have to becomemembers of the bank". It thus appears that the sanctionof the loan by order dated 21.1.1997 was conditional upondefendant No.1 furnishing personal guarantee of defendantNos. 2, 3 and 4 and defendant Nos. 2, 3 and 4 becomingnominal members of the petitioner-bank. It, therefore,appears that the applications for enrolment ofmembership, and for loans made on 26/30.12.1996, sanctionof loan on 21.1.1997, execution of documents on 25.1.1997and subsequent disbursements were a part of the sametransaction touching the business of the petitioner-banki.e. the banking business of the petitioner-cooperativesociety. In this view of the matter, the decision of theApex Court in D.M. Co-op. Bank vs. Dalichand, AIR 1969SC 1320 will apply wherein the Apex Court observed thatonce it is held that the original transaction was enteredinto by the member with the society as a member then anyperson who claims rights or title through that membermust come within the provisions of Section 91(1)(b) ofthe Maharashtra Co-operative Societies Act, 1961 which isanalogous to the provisions of Section 96(1)(b) of theGujarat Act.
Both the Board of Nominees and the Tribunal havetaken the view that the date of disbursement would be therelevant date for considering whether the defendants weremembers of the petitioner-society on the date oftransaction. This Court finds no reason to discard thatview.
13. As regards the contention that the guarantorshave no transaction with the petitioner-bank after25.1.1997 or after 26.2.1997, the submission proceeds onthe assumption that the liability of the guarantorsarises upon execution of the documents which would be anobvious misconception. The liability would arise onlyupon disbursement of the loan in favour of the principalborrower and default being committed by the borrower inpayment. Until the loan is disbursed to the principalborrower, there cannot be any question of guarantorincurring any liability to pay. Hence, in so far as theguarantors are concerned, for them also the date oftransaction would be the date of disbursement of the loanto the borrower. In this view of the matter also, thereis no substance in the contention that defendant Nos. 2to 4 stand on a different footing from defendant No.1.
14. It appears that the observations/direction arebeing utilized by the defendants to delay the hearing ofleave to defend application in the Summary Suit pendingbefore the Board of Nominees by giving anotherapplication Exh.74 which is similar to application Exh. 15which is already dismissed by the Board of Nominees andwhich order is confirmed by the Tribunal.
15. None of the authorities cited by Mr Thakkar dealswith the controversy raised in this petition and,therefore, it is not necessary to deal with the same.
16. In view of the above discussion, the petition isallowed. The following observations in the order dated29.8.2003 (Annexure "J") passed by the Gujarat StateCo-operative Tribunal in revision application No. 196 of2003 are deleted :-
"The learned Nominee is directed to decide the issue of membership as it involves mixed question of law and fact by taking evidence of both the parties in trial, and proceed in the matter according to law and decide the same on merits."
Accordingly, the Board of Nominees shall proceedwith the Summary Lavad Suit at the stage at which it waslying when the Board of Nominees dismissed applicationExh.15.
Rule is made absolute to the aforesaid extentwith no order as to costs.
17. At this stage, Mr Thakkar for therespondent-defendants prays that operation of thisjudgment may be stayed for some time to enable thedefendants to have further recourse in accordance withlaw.
Since there are concurrent findings given bythree Courts i.e. the Board of Nominees, Tribunal andthis Court on the question about maintainability of thesuit, there is no warrant for staying the operation ofthis order.
18. Mr Thakkar presses his Civil Application No.7711 of 2003 which was filed for vacating the ad-interimstay dated 9.9.2003 and wants to address the Court.
Since the Court has allowed the main petition andmade the Rule absolute by deleting the observations inquestion from the operative order of the Tribunal, thereis no question of considering either the CivilApplication filed by the defendants for vacating thead-interim stay or the Civil Application of thepetitioner-Bank for extension of stay and the Court has,therefore, not permitted Mr Thakkar to argue any CivilApplication for the simple reason that both the CivilApplications have become infructuous in view of the orderpassed in the main petition.
19. Since the main petition itself is allowed and theobservations in question made by the Tribunal have beenordered to be deleted, both the Civil Applications wouldnot survive and the same are accordingly disposed of.